The classification of deferred acquisition costs (DAC) as monetary or nonmonetary items is dependent on the classification of the contract as either short-duration or long-duration. See IG 2 for a description of the various classification models. ASC 830-10-45-18 and ASC 255-10-55-1 require that DAC and related amortization for property and casualty contracts (short-duration) be classified as nonmonetary items. DAC and related amortization for life insurance contracts (long-duration), on the other hand, would be classified as monetary items.

Nonmonetary assets and liabilities are initially measured using historical exchange rates with all aspects of the ongoing accounting for these items (e.g., amortization, impairment) measured in terms of the entity’s functional currency. Monetary assets and liabilities are measured at the end of each reporting period based on the then-current exchange rates. This measurement gives rise to foreign currency gains and losses recorded in current period net income. See our Foreign currency guide (FX 5.4) for further information.

Although BC 84 in the Basis for Conclusions of ASU 2018-12 observes that “deferred acquisition costs are not, in themselves, monetary items,” ASC 830 and ASC 255 note that classification as a monetary item is a practical solution given the close relationship of DAC for life insurers to related monetary items (the insurance liabilities).